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isio.comSeptember 2021FiduciaryManagement OversightWhat it is and how it can benefit yourpension schemeDocument classification: Public
1What is fiduciarymanagement?Fiduciary management (or “FM”) is a way of managing assetsthat includes both advice on how to invest, and also theimplementation of that advice. This is an increasingly commonway to manage assets for UK pension Trustees in particular.Under a traditional consulting model, this advice comes fromtheir investment consultant; whilst under an FM model, a numberof the investment decisions are delegated to the fiduciarymanager. Importantly, under both approaches, the Trustees willretain responsibility for setting the investment objectives.The chart below compares a traditional investment consultingmodel versus that of a FM model.Investment consulting modelFiduciary managementInvestmentobjectivesConsultant AdviceStrategic assetallocationLiability hedginglevelsConsultant AdviceFiduciary ManagerFund managerselectionTactical allocationacross asset classesSecurity selectionAsset Managers Isio Group Limited/Isio Services Limited 2021. All rights reservedAsset ManagersDocument classification: Public 2
2What is fiduciarymanagement oversight?Because fiduciary managers cannot independently assess how theyare doing – and will often be using a complicated strategy with lots ofdifferent asset classes and funds – many pension schemes will appoint afiduciary management oversight provider to help make that assessment.A fiduciary oversight provider will periodically review the fiduciarymanager to let the Trustees know: are they doing a good job and addingvalue? Could they be doing anything else? Are the fees and costs stillcompetitive? Are there any risks that need to be addressed? (For acomprehensive list see the checklist on the next page).A fiduciary oversight provider then helps you get the most out of yourfiduciary manager, improving your outcomes (e.g. reducing risk, meetingyour funding objectives, improved reporting).Fiduciary Management structurePension Scheme TrusteesCurrencyHedgeOtherManager EManager DFiduciary ManagerManager CManager BManager AFiduciary oversightFund managers Isio Group Limited/Isio Services Limited 2021. All rights reservedDocument classification: Public 3
3How does it work?The approach taken to fiduciary oversight should beflexible and aligned to the specific needs of the client.We believe what works best is an annual review of how themanager has performed with more frequent light touch“check-ins” to make sure that everything is on track.Here is an example fiduciary oversight checklist covering some of theareas that we think are important. If you use fiduciary management youmay want to consider these questions for your pension scheme.Yes / No / Investigate further“At Isio we also supplement ourmonitoring with a formal rating (red,amber or green) of your fiduciarymanager so you can have confidencethat they have a “clean bill of health”. Ourratings are continually refreshed so ifanything changes which could impact ontheir ability to deliver their service you willknow straight away.” Paula Champion,Head of FM Oversight, Isio“A fiduciary oversight provider shouldprovide concise, easy-to-read reports.They should complement and notduplicate information you receive fromyour fiduciary manager.”Daniel Walsh, Fiduciary Specialist, Isio1.Am I on track to meet myjourney plan objectives?2. Has recent performancebeen good?3. Was performance the resultof good judgement (or goodluck)?4. Am I happy that thoseinvestment decisions that lostmoney were still sensible?5. Does this compare well withother fiduciary managers andschemes?6. Is my Environmental, Social orGovernance impact positive?7. Is my fiduciary manager highlyrated?8. Is my fiduciary fee in line withthe market?9. Are my overall investmentcosts low?10. Can I disinvest my assets if Iwant to (or am I “locked in”)?We have also included some case studies within the appendixthat give you some real-life examples. Isio Group Limited/Isio Services Limited 2021. All rights reservedDocument classification: Public 4
4What is the benefit?If done well fiduciary oversight will mean that you make improvements to yourinvestments sooner, and achieve materially better outcomes as a result.5This could be through: Helping keep your scheme on track to meet its long-termobjectives, to ultimately secure member benefits. Fiduciary cost control, which can save tens of thousandsor even hundreds of thousands of pounds per yeardepending on scheme size (see charts below). Dealing with any areas of underperformance, which couldbe costing your scheme millions of pounds per year. Finally, a clear understanding of your fiduciary manager’sapproach and confidence that they are doing the rightthings on behalf of your scheme.How much does it cost?Typical fiduciary oversight costs are relatively very low for schemeswith more than 20m in assets. For schemes larger than 100m theoversight fee is typically less than 0.02% of assets per year.Fee (% of assets)FM oversight feeIllustrative fiduciaryFunds fee0.35%FM feeFM dsfee Fundsfee Fundsfee fee0.30%FM feeFM feeFM feeFMFMfeefeeFM feeoversight costs0.25%0.20%0.15%0.10%0.05%0.00% 20 m 50 m 100 m 500 m 1 bn0.25%0.25%0.25%0.25%0.25%SchemesizeScheme 20m 50m 100m 500m 1bnSchemesize 50m 100m 500m 1bn 1bn mesizesizesizeSchemesize 20m 20msize 20m 20m 50m 50m 20m 20m 50m 100m 100m 50m 50m 100m 500m 500m 100m 100m 500m 1bn 500m 1bn 500m 1bnManager fee %FM oversightfee( ersightfeeFMfee( oversight( pa)FMpa)oversightfeeoversight10,000( 0.05%10,000pa)fee ( feepa)( 5,00035,00030,00030,00035,00035,00035,000FM oversight fee %0.03%0.02%0.006%0.004%(% of assets)(%(%ofofassets)assets)(% of assets)(%0.05%of assets)(%0.05%of ndsfeefee( ( pa)Fundspa) ( pa)feeFunds( Fundspa)fee50,000( 50,000feepa)( 50,000pa) 02,500,0002,500,0002,500,000(% of assets)(%(%ofofassets)(% of assets)(%0.25%of assets)assets)(%0.25%of 5%0.25%0.25%0.25%0.25%0.25%0.25%0.25% 0.25%0.25%FMfee( pa)60,000125,000200,000750,0001,250,000FMFMfeefee( ( pa)pa)FMfeeFM( pa)feeFM( fee60,000pa)60,000( 0001,250,0001,250,000(% of assets)(%(%ofofassets)assets)(% of assets)(%0.30%of assets)(%0.30%of 0%0.15%0.13%0.13%0.15%0.13%0.15% 0.13% 0.13%0.13%Note: fees set out above are indicative based on our experience of what we have seen in the market and are notguaranteed. The scope of the fiduciary oversight services will typically differ between small and large rienceofwewhatofwewhat wehaveseenin fiduciaryhavehaveseenseenin tin eed.fiduciaryscopeTheofscopetheThefiduciaryscopeof the fiduciaryof the fiduciary Isio Group Limited/Isio Services Limited 2021. All rights reservedDocument classification: Public hemes.largeandschemes.large schemes.
6Why Isio for FM oversight?Experience andflexibilityInvestment expertise strategic thinkingWider pensions teamon hand“We have been publishing the “FMSurvey” for almost ten years now,covering the development of thefiduciary management industry. Thelatest copy is available online hereFaye Mullen, Head of FM Research, Isio“Would you like to speak to an independentinvestment expert to check that everythingis working as well as it can with yourfiduciary management strategy? If so wewould love to hear from you.”1. At Isio we have been providing fiduciaryoversight services for over 10 years andhave one of the largest teams with the mostresearch and client experience. That meanswe have hands on practical experience ofsome of the fiduciary management issuesthat can arise, and how to avoid them.2. All of our oversight consultants are eitherqualified to give investment advice intheir own right or are working towards thisqualification. So we can really understand thenuts and bolts of what the fiduciary managersare doing.3. Finally, at Isio we have a large pensions teamon hand who we work with to make sure thateverything is lining up properly: your assets,funding level and – ultimately – buyout withan insurer.Anthony Webb, Head of FM Clients, Isio Isio Group Limited/Isio Services Limited 2021. All rights reservedDocument classification: Public 6
ContactPaula Champion, AIAHead of FM Oversight 44 (0)117 3746477paula.champion@isio.comAnthony Webb, FIAHead of Fiduciary Clients 44 (0)207 123 6004anthony.webb@isio.comFaye Mullen, CFAHead of Fiduciary Research 44 (0)113 512 5621faye.mullen@isio.comThe information contained herein is of a general nature and is not intended to address the circumstances of any particularindividual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee thatsuch information is accurate as of the date it is received or that it will continue to be accurate in the future. No one shouldact on such information without appropriate professional advice after a thorough examination of the particular situation.Isio Services Limited is authorised and regulated by the Financial Conduct Authority FRN 922376
AppendixCase Study 1 - adding value through ongoing oversightFor the last four years we have been providing fiduciary oversight for a 600m scheme.At the start of our appointment we agreed the Trustee’s priorities fortheir fiduciary manager. We then put in place quarterly light touchreports and annual reviews.How we added value: Based on our market view, achieved fiduciary manager fee savingsof 0.5m per annum.Facilitated an increase in the liability hedge level for interestrates and inflation from 75% to 100% of assets. Helped protectcapital and funding levels over the last two years.Worked with the fiduciary manager to improve the clarity ofreporting to Trustees.Outcome:Improved terms with clear objectives for success, and ongoing supportfrom our team to ensure their fiduciary manager achieves it.Case study 2 – oversight for identifying errors andreducing riskWe provide light touch fiduciary oversight to a 60m pension scheme.Our brief is to make sure that the fiduciary manager is doing what theysaid they would, and that decisions taken by the fiduciary are addingvalue. We provide a light touch (one page) quarterly review.What happened?In Q1 2019, we identified the FM had invested in High Yield bonds,despite this asset class not being permitted by the client. This had notbeen identified by the fiduciary manager.Outcome:We notified the fiduciary manager who accepted liability for any lossesthat would have resulted, (although in this event a small gain wasmade). Our post-mortem found that no-one with first-hand knowledgeof the client was reviewing instructions to buy and sell assets. On theback of our feedback the FM have evolved their process to stop similarmistakes from occurring in future.
fiduciary manager, improving your outcomes (e.g. reducing risk, meeting your funding objectives, improved reporting). What is fiduciary 2 management oversight? Fiduciary Management structure Fiduciary oversight Manager A Manager B Manager C Manager D Manager E Other Currency Hedge Pension Scheme Trustees Fiduciary Manager
